Mortgage pre-approval is needed in order to make an Offer in our area. Anyone without one appears disorganized, at best, and is likely to be written off by a seller as not worthy of consideration, at worst. The first question from a seller or seller’s agent about an offer is “How much?” The second is either “Are they pre-approved?” or “Can they close on our date?”
I got a unique question this year from one of my house hunters:
For example, if my income or Mike’s credit rating improves considerably between pre-approval and more concrete action on our part (possibly years down the road), will that lower income or credit rating hurt us because it was known we had worse credit or lower income at one point?
This is a complicated question that no one has asked before. I checked with Loren Shapiro at Village Mortgage, then answered:
The lender is interested in your income at the time of the loan.
• If you are on a payroll, in a salaried position, they’ll need a month of paystubs to support your income. What you earned a year ago is irrelevant. If you are self-employed, your income is the average of the past two years.
• If there is a big difference, you will need to document why the lower amount is not the norm.
• If you get commissions or bonuses, you will need to show that you will continue to get them, if those funds are counted as your income to qualify for the loan.
Your credit score at the time you apply is what matters. If it was lower in the past, it will not affect a current application. You can apply at multiple lenders at the same time without hurting your credit score. But, you don’t want to keep applying every month to different lenders at different times. The credit score ding is small the first time, but many of them –monthly or every couple of months — could trigger a bigger ding. (Their algorithm is a moving target.)
There is no down-side to applying for a mortgage when you decide to start house-hunting. Worst case is that you waste a few hours collecting paperwork for the lenders. The upside is that if you find what you want, you’ll be a position to buy it.
Also, you will find out how the process works. This will reduce stress if you come back some time later to do it again. The lenders do not keep track of previous applications and credit scores as a reference point for a current loan application.